UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission File Number 0-9756
RIGGS NATIONAL CORPORATION
--------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-1217953
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1503 Pennsylvania Avenue, N.W., Washington, D.C. 20005
------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(202) 835-4309
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X. No .
- -
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $2.50 par value 28,493,321
----------------------------- ----------
(Title of Class) (Outstanding at July 31, 2001)
RIGGS NATIONAL CORPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements-Unaudited
Consolidated Statements of Income
Three and six months ended June 30, 2001 and 2000 3
Consolidated Statements of Condition
June 30, 2001 and 2000, and December 31, 2000 4
Consolidated Statements of Changes in Shareholders' Equity
Six months ended June 30, 2001 and 2000 5
Consolidated Statements of Cash Flows
Six months ended June 30, 2001 and 2000 6
Notes to the Consolidated Financial Statements 7-14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15-22
Item 3. Quantitative and Qualitative Disclosures about Market Risk 23-25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 26
Item 2. Change in Securities 26
Item 3. Defaults Upon Senior Securities 26
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 5. Other Information 27
Item 6. Exhibits and Reports on Form 8-K 27
Signatures 27
-2-
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS-UNAUDITED
RIGGS NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS ENDED SIX MONTHS ENDED
(UNAUDITED) JUNE 30, JUNE 30,
------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2001 2000 2001 2000
===================================================================================================================================
INTEREST INCOME
Interest and Fees on Loans $ 51,775 $ 59,368 $ 105,362 $ 118,716
Interest and Dividends on Securities Available for Sale 16,885 19,578 35,486 39,917
Interest on Time Deposits with Other Banks 3,617 5,507 8,694 11,096
Interest on Federal Funds Sold and Reverse Repurchase Agreements 4,626 5,359 8,750 10,164
-----------------------------------------------------------------------------------------------------------------------------------
Total Interest Income 76,903 89,812 158,292 179,893
INTEREST EXPENSE
Interest on Deposits:
Savings and NOW Accounts 428 562 937 1,188
Money Market Deposit Accounts 6,864 9,969 15,537 19,467
Time Deposits in Domestic Offices 7,570 10,864 16,502 23,106
Time Deposits in Foreign Offices 7,691 9,454 16,034 17,353
-----------------------------------------------------------------------------------------------------------------------------------
Total Interest on Deposits 22,553 30,849 49,010 61,114
-----------------------------------------------------------------------------------------------------------------------------------
Interest on Short-Term Borrowings and Long-Term Debt:
Repurchase Agreements and Other Short-Term Borrowings 4,281 8,612 11,169 17,777
Long-Term Debt 1,618 1,618 3,236 3,236
-----------------------------------------------------------------------------------------------------------------------------------
Total Interest on Short-Term Borrowings and Long-Term Debt 5,899 10,230 14,405 21,013
-----------------------------------------------------------------------------------------------------------------------------------
Total Interest Expense 28,452 41,079 63,415 82,127
-----------------------------------------------------------------------------------------------------------------------------------
Net Interest Income 48,451 48,733 94,877 97,766
Less: Provision for Loan Losses - 403 115 1,003
-----------------------------------------------------------------------------------------------------------------------------------
Net Interest Income after Provision for Loan Losses 48,451 48,330 94,762 96,763
NONINTEREST INCOME
Trust and Investment Advisory Income 13,349 13,864 26,013 27,462
Service Charges and Fees 11,022 10,442 21,359 20,050
Venture Capital Investment Gains (Losses), Net (5,991) 5,579 (13,877) 12,616
Other Noninterest Income 2,890 2,377 5,108 4,365
Securities Gains, Net 997 11 11,385 321
-----------------------------------------------------------------------------------------------------------------------------------
Total Noninterest Income 22,267 32,273 49,988 64,814
NONINTEREST EXPENSE
Salaries and Employee Benefits 26,406 24,756 52,315 49,284
Occupancy, Net 5,142 4,972 10,377 9,903
Data Processing Services 5,188 5,237 10,775 10,437
Furniture and Equipment 2,780 2,974 5,865 6,033
Other Real Estate Owned (Income) Expense, Net (50) 14 (200) (23)
Other Noninterest Expense 17,696 17,663 34,549 33,826
-----------------------------------------------------------------------------------------------------------------------------------
Total Noninterest Expense 57,162 55,616 113,681 109,460
-----------------------------------------------------------------------------------------------------------------------------------
Income before Taxes, Minority Interest and Extraordinary Loss 13,556 24,987 31,069 52,117
Applicable Income Tax Expense 4,408 8,915 11,392 18,555
Minority Interest in Income of Subsidiaries, Net of Taxes 4,960 5,742 9,883 11,680
===================================================================================================================================
Net Income $ 4,188 $ 10,330 $ 9,794 $ 21,882
EARNINGS PER SHARE- Basic $ 0.15 $ 0.36 $ 0.34 $ 0.77
Diluted 0.14 0.36 0.34 0.77
DIVIDENDS DECLARED AND PAID PER SHARE $ 0.05 $ 0.05 $ 0.10 $ 0.10
-3-
RIGGS NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
(UNAUDITED) JUNE 30, JUNE 30, DECEMBER 31,
(IN THOUSANDS, EXCEPT SHARE AMOUNTS) 2001 2000 2000
=======================================================================================================================
ASSETS
Cash and Due from Banks $ 151,174 $ 147,108 $ 156,075
Federal Funds Sold and Reverse Repurchase Agreements 429,000 398,000 395,000
-----------------------------------------------------------------------------------------------------------------------
Total Cash and Cash Equivalents 580,174 545,108 551,075
Time Deposits with Other Banks 326,333 326,029 365,901
Securities Available for Sale (at Market Value) 1,131,895 1,310,150 1,239,973
Venture Capital Investments 68,723 76,266 83,734
Loans 2,929,381 3,140,441 2,940,738
Reserve for Loan Losses (34,111) (37,036) (36,197)
-----------------------------------------------------------------------------------------------------------------------
Total Net Loans 2,895,270 3,103,405 2,904,541
Premises and Equipment, Net 196,325 200,597 200,455
Other Assets 197,402 231,216 208,793
=======================================================================================================================
Total Assets $5,396,122 $5,792,771 $5,554,472
LIABILITIES
Deposits:
Noninterest-Bearing Demand Deposits $ 594,736 $ 653,968 $ 676,405
Interest-Bearing Deposits:
Savings and NOW Accounts 276,093 326,012 315,375
Money Market Deposit Accounts 1,667,092 1,661,356 1,694,705
Time Deposits in Domestic Offices 721,541 876,094 785,318
Time Deposits in Foreign Offices 728,492 734,934 604,174
-----------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Deposits 3,393,218 3,598,396 3,399,572
-----------------------------------------------------------------------------------------------------------------------
Total Deposits 3,987,954 4,252,364 4,075,977
Repurchase Agreements and Other Short-Term Borrowings 442,558 636,377 582,832
Other Liabilities 160,356 124,430 96,392
Long-Term Debt 66,525 66,525 66,525
-----------------------------------------------------------------------------------------------------------------------
Total Liabilities 4,657,393 5,079,696 4,821,726
GUARANTEED PREFERRED BENEFICIAL INTERESTS IN JUNIOR
SUBORDINATED DEFERRABLE INTEREST DEBENTURES 350,000 350,000 350,000
=======================================================================================================================
SHAREHOLDERS' EQUITY
Common Stock-$2.50 Par Value
Shares Authorized - 50,000,000 at June 30, 2001 and 2000, and
December 31, 2000
Shares Issued - 31,775,785 at June 30, 2001, 31,651,464 at
June 30, 2000 and 31,701,464 at December 31, 2000 79,440 79,129 79,254
Surplus 162,918 161,744 162,206
Retained Earnings 233,565 229,734 226,616
Accumulated Other Comprehensive Loss (15,837) (36,175) (13,973)
Treasury Stock - 3,300,798 shares at June 30, 2001 and 2000, and
December 31, 2000 (71,357) (71,357) (71,357)
-----------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 388,729 363,075 382,746
=======================================================================================================================
Total Liabilities and Shareholders' Equity $5,396,122 $5,792,771 $5,554,472
-4-
RIGGS NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
COMMON ACCUMULATED
STOCK OTHER TOTAL
$2.50 RETAINED COMPREHENSIVE TREASURY SHAREHOLDERS'
PAR SURPLUS EARNINGS INCOME (LOSS) STOCK EQUITY
===================================================================================================================================
Balance, December 31, 1999 $ 79,039 $161,439 $ 210,682 $ (42,090) $ (71,357) $ 337,713
Comprehensive Income:
Net Income 21,882 21,882
Other Comprehensive Income
(Loss), Net of Tax: (1)
Unrealized Gain (Loss) on
Securities Available for Sale, Net
of Reclassification Adjustments 7,684 7,684
Foreign Exchange
Translation Adjustments (1,769) (1,769)
------------
Total Other Comprehensive
Income (Loss) 5,915
============
Total Comprehensive Income (Loss) 27,797
Issuance of Common Stock for
Stock Option Plans-33,000 Shares 90 305 395
Cash Dividends -
Common Stock, $.10 per Share (2,830) (2,830)
===================================================================================================================================
Balance, June 30, 2000 $ 79,129 $161,744 $ 229,734 $ (36,175) $ (71,357) $ 363,075
Balance, December 31, 2000 $ 79,254 $162,206 $ 226,616 $ (13,973) $ (71,357) $ 382,746
Comprehensive Income:
Net Income 9,794 9,794
Other Comprehensive Income
(Loss), Net of Tax: (1)
Unrealized Gain (Loss) on
Securities Available for Sale, Net
of Reclassification Adjustments 1,359 1,359
Unrealized Gain (Loss) on Derivatives,
Net of Reclassification Adjustments (1,731) (1,731)
Foreign Exchange
Translation Adjustments (1,492) (1,492)
------------
Total Other Comprehensive
Income (Loss) (1,864)
============
Total Comprehensive Income (Loss) 7,930
Issuance of Common Stock for
Stock Option Plans-74,321 Shares 186 712 898
Cash Dividends -
Common Stock, $.10 per Share (2,845) (2,845)
===================================================================================================================================
Balance, June 30, 2001 $ 79,440 $162,918 $ 233,565 $ (15,837) $ (71,357) $ 388,729
(1) - See Notes to the Financial Statements for gross unrealized gains or
losses arising during each period and the tax effect on each item of
comprehensive income.
-5-
RIGGS NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30,
------------------------
2001 2000
===================================================================================================================================
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 9,794 $ 21,882
Adjustments to Reconcile Net Income to Cash
Provided By Operating Activities:
Provision for Loan Losses 115 1,003
Unrealized Losses (Gains) on Venture Capital Investments 19,768 (10,493)
Gains on Sale of Venture Capital Investments (5,894) (2,122)
Depreciation Expense and Amortization of Leasehold Improvements 7,516 6,884
Gains on Sale of Securities Available for Sale (11,385) (321)
Gains on Sales of OREO Properties (57) -
Decrease (Increase) in Other Assets 10,433 (7,219)
Increase in Other Liabilities 17,629 30,301
-----------------------------------------------------------------------------------------------------------------------------------
Total Adjustments 38,125 18,033
-----------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided By Operating Activities 47,919 39,915
-----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net Decrease In Time Deposits with Other Banks 39,568 87,499
Principal Collections and Maturities of Securities Available for Sale 1,784,808 593,201
Proceeds from Sales of Securities Available for Sale 89,430 207,942
Purchases of Securities Available for Sale (1,708,079) (783,514)
Purchases of Venture Capital Investments (8,429) (27,790)
Proceeds from Sale of Venture Capital Investments 9,566 3,664
Net Decrease in Loans 9,679 56,547
Net Increase in Premises and Equipment (3,386) (4,641)
Other, Net (241) (429)
-----------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided By Investing Activities 212,916 132,479
-----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase (Decrease) in:
Demand, NOW, Savings and Money Market Deposit Accounts (148,564) 27,592
Time Deposits 60,541 49,439
Repurchase Agreements and Other Short-Term Borrowings (140,274) (195,825)
Proceeds from the Issuance of Common Stock 898 395
Dividend Payments - Common (2,845) (2,830)
-----------------------------------------------------------------------------------------------------------------------------------
Net Cash Used In Financing Activities (230,244) (121,229)
-----------------------------------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes (1,492) (1,769)
-----------------------------------------------------------------------------------------------------------------------------------
Net Increase in Cash and Cash Equivalents 29,099 49,396
Cash and Cash Equivalents at Beginning of Period 551,075 495,712
===================================================================================================================================
Cash and Cash Equivalents at End of Period $ 580,174 $545,108
SUPPLEMENTAL SCHEDULE OF CASH FLOW ACTIVITIES:
NONCASH ACTIVITIES:
Trade Dated Securities Included in Other Liabilities $ 54,762 $ 25,753
CASH PAID DURING THE YEAR FOR:
Interest Paid (Net of Amount Capitalized) $ 64,894 $ 82,378
Income Tax Payments 57 1,102
-6-
RIGGS NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(TABLES IN THOUSANDS, EXCEPT SHARE AMOUNTS)
NOTE 1. BASIS OF PRESENTATION
The interim financial statements presented in this Quarterly Report on Form 10-Q
are in conformity with accounting principles generally accepted in the United
States which have been applied on a consistent basis. In our opinion these
interim financial statements include all normal recurring adjustments necessary
to fairly present our results of operations, financial condition and cash flows.
The preparation of financial statements requires the use of estimates and
assumptions that affect the amounts reported. Actual results could differ from
those estimates and the results of operations for the three and six months ended
June 30, 2001 are not necessarily indicative of the results to be expected for
all of 2001. The financial statements contained herein should be read in
conjunction with the financial statements and accompanying notes in our Annual
Report on Form 10-K.
NOTE 2. EARNINGS PER SHARE
Earnings per share computations are as follows:
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 2001 JUNE 30, 2000
================================================
BASIC DILUTED BASIC DILUTED
EPS EPS EPS EPS
================================================
Net Income Available to Common Shareholders $ 4,188 $ 4,188 $ 10,330 $ 10,330
Weighted-Average Shares Outstanding 28,458,875 28,458,875 28,331,857 28,331,857
Weighted-Average Dilutive Effect
of Stock Option Plans n/a 495,904 n/a 219,217
------------------------------------------------
Adjusted Weighted-Average Shares Outstanding 28,458,875 28,954,779 28,331,857 28,551,074
Basic EPS $ .15 $ .36
Diluted EPS $ .14 $ .36
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2001 JUNE 30, 2000
================================================
BASIC DILUTED BASIC DILUTED
EPS EPS EPS EPS
================================================
Net Income Available to Common Shareholders $ 9,794 $ 9,794 $ 21,882 $ 21,882
Weighted-Average Shares Outstanding 28,448,673 28,448,673 28,323,744 28,323,744
Weighted-Average Dilutive Effect
of Stock Option Plans n/a 423,901 n/a 105,109
------------------------------------------------
Adjusted Weighted-Average Shares Outstanding 28,448,673 28,872,574 28,323,744 28,428,853
Basic EPS $ .34 $ .77
Diluted EPS $ .34 $ .77
-7-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 3. OTHER COMPREHENSIVE INCOME
OTHER COMPREHENSIVE INCOME (LOSS) BEFORE - TAX
TAX (EXPENSE) NET-OF-TAX
AMOUNT BENEFIT AMOUNT
===================================================================================================================================
SIX MONTHS ENDED JUNE 30, 2001:
Foreign Currency Translation Adjustments $ (2,295) $ 803 $ (1,492)
Unrealized Gains (Losses) on Securities:
Unrealized Holding Gains (Losses) Arising During Period 2,168 (759) 1,409
Less: Reclassification Adjustment for (Gains) Losses Realized in Net Income (77) 27 (50)
-----------------------------------------------------------------------------------------------------------------------------------
Net Unrealized Gains (Losses) 2,091 (732) 1,359
-----------------------------------------------------------------------------------------------------------------------------------
Unrealized Gains (Losses) on Derivatives:
Unrealized Holding Gains (Losses) Arising During Period (2,663) 932 (1,731)
-----------------------------------------------------------------------------------------------------------------------------------
Net Unrealized Gains (Losses) (2,663) 932 (1,731)
===================================================================================================================================
Other Comprehensive Income (Loss) $ (2,867) $ 1,003 $ (1,864)
SIX MONTHS ENDED JUNE 30, 2000:
Foreign Currency Translation Adjustments $ (2,722) $ 953 $ (1,769)
Unrealized Gains (Losses) on Securities:
Unrealized Holding Gains (Losses) Arising During Period 12,142 (4,249) 7,893
Less: Reclassification Adjustment for (Gains) Losses Realized in Net Income (321) 112 (209)
-----------------------------------------------------------------------------------------------------------------------------------
Net Unrealized Gains (Losses) 11,821 (4,137) 7,684
-----------------------------------------------------------------------------------------------------------------------------------
Unrealized Gains (Losses) on Derivatives:
Unrealized Holding Gains (Losses) Arising During Period - - -
-----------------------------------------------------------------------------------------------------------------------------------
Net Unrealized Gains (Losses) - - -
===================================================================================================================================
Other Comprehensive Income (Loss) $ 9,099 $(3,184) $ 5,915
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) BALANCES
FOREIGN UNREALIZED UNREALIZED ACCUMULATED
CURRENCY GAIN (LOSS) GAIN (LOSS) OTHER
TRANSLATION ON ON COMPREHENSIVE
ADJUSTMENTS SECURITIES DERIVATIVES INCOME (LOSS)
===================================================================================================================================
SIX MONTHS ENDED JUNE 30, 2001:
Balance, December 31, 2000 $ (4,657) $ (9,316) $ - $ (13,973)
Current-Period Change (1,492) 1,359 (1,731) (1,864)
===================================================================================================================================
Balance, June 30, 2001 $ (6,149) $ (7,957) $(1,731) $ (15,837)
SIX MONTHS ENDED JUNE 30, 2000:
Balance, December 31, 1999 $ (2,597) $(39,493) $ - $ (42,090)
Current-Period Change (1,769) 7,684 - 5,915
===================================================================================================================================
Balance, June 30, 2000 $ (4,366) $(31,809) $ - $ (36,175)
-8-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 4: SEGMENT PROFITABILITY
Our reportable segments are strategic business units that provide diverse
products and services within the financial services industry. We have six
reportable segments: Banking, International Banking, Riggs & Company, Treasury,
Riggs Capital Partners and Other. The Banking segment provides traditional
banking services, such as lending and deposit taking to retail, corporate and
commercial customers. The International Banking segment includes our Washington,
D.C.- based embassy banking business, our London-based banking subsidiary, Riggs
Bank Europe Limited (RBEL), and our Berlin branch (a subsidiary of RBEL). The
International Banking segment also includes the part of our private-client
services division based in London-Riggs & Company International, Limited. Riggs
& Company is our private client services division that provides trust and
investment management services to a broad customer base. The Treasury segment is
responsible for asset and liability management throughout our company, and of
our investment portfolio. Riggs Capital Partners represents our venture capital
subsidiaries, which initially invest in privately-held and hold equities in both
privately-held and publicly-owned growth companies. "Other" consists of our
unallocated parent-company income and expense, net interest income from
unallocated equity and foreclosed real estate activities.
We evaluate segment performance based on income before taxes and minority
interest. The accounting policies of the segments are substantially the same as
those described in the summary of significant accounting policies disclosed in
our December 31, 2000 Form 10-K. We account for intercompany transactions as if
the transactions were to third parties under market conditions. Overhead and
support expenses are allocated to each operating segment based on number of
employees, service usage and other factors relevant to the expense incurred.
Reconciliations are provided from the segment totals to our consolidated
financial statements. The reconciliations of noninterest income and noninterest
expense offset as these items result from intercompany transactions. For years
in which we have either no provision for loan losses or a reduction to the
reserve for loan losses, an allocation of loan loss is not provided to the
segments. The reconciliation of total average assets represents the elimination
of intercompany transactions.
===================================================================================================================================
THREE MONTHS RIGGS RIGGS
ENDED INTERNATIONAL RIGGS & CAPITAL NATIONAL
JUNE 30, 2001 BANKING BANKING COMPANY TREASURY PARTNERS OTHER RECONCILIATION CORPORATION
-----------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME
Interest Income $ 45,234 $ 11,593 $ 1,223 $ 31,388 $ 140 $ 10,490
Interest Expense 13,217 15,294 1,821 10,008 - 10,671
Funds Transfer Income (Expense) (431) 13,381 3,652 (21,773) (12) 5,183
-----------------------------------------------------------------------------------------------
Net Interest Income (Loss),
Tax-Equivalent 31,586 9,680 3,054 (393) 128 5,002
Provision for Loan Losses - - - - - -
Tax Equivalent Adjustment (606) - - - - -
-----------------------------------------------------------------------------------------------
Net Interest Income (Loss) $ 30,980 $ 9,680 $ 3,054 $ (393) $ 128 $ 5,002 $ - $ 48,451
-----------------------------------------------------------------------------------------------
NONINTEREST INCOME
Noninterest Income-External
Customers $ 10,664 $ 1,464 $ 14,112 $ 840 $ (5,991) $ 1,178
Intersegment Noninterest Income 837 1,866 607 - - 612
-----------------------------------------------------------------------------------------------
Total Noninterest Income $ 11,501 $ 3,330 $ 14,719 $ 840 $ (5,991) $ 1,790 $ (3,922) $ 22,267
-----------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Depreciation and Amortization $ 1,068 $ 350 $ 216 $ 4 $ 7 $ 2,319
Direct Expense 17,814 9,809 9,505 989 1,045 17,959
Overhead and Support 12,856 3,110 2,406 550 76 (18,999)
-----------------------------------------------------------------------------------------------
Total Noninterest Expense $ 31,738 $ 13,269 $ 12,127 $ 1,543 $ 1,128 $ 1,279 $ (3,922) $ 57,162
-----------------------------------------------------------------------------------------------
Income (Loss) Before Taxes and
Minority Interest $ 10,743 $ (259) $ 5,646 $ (1,096) $ (6,991) $ 5,513 $ - $ 13,556
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
Total Average Assets $2,723,818 $ 837,466 $ 94,324 $2,480,263 $ 87,841 $ 878,564 $(1,745,693) $5,356,583
===================================================================================================================================
-9-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
===================================================================================================================================
THREE MONTHS RIGGS RIGGS
ENDED INTERNATIONAL RIGGS & CAPITAL NATIONAL
JUNE 30, 2000 BANKING BANKING COMPANY TREASURY PARTNERS OTHER RECONCILIATION CORPORATION
-----------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME
Interest Income $ 49,799 $ 15,938 $ 1,493 $ 37,278 $ - $ 11,901
Interest Expense 15,253 21,520 2,769 14,429 - 13,146
Funds Transfer Income (Expense) (3,050) 14,599 4,146 (20,421) 93 4,633
-----------------------------------------------------------------------------------------------
Net Interest Income (Loss),
Tax-Equivalent 31,496 9,017 2,870 2,428 93 3,388
Provision for Loan Losses - (403) - - - -
Tax Equivalent Adjustment (559) - - - - -
-----------------------------------------------------------------------------------------------
Net Interest Income (Loss) $ 30,937 $ 8,614 $ 2,870 $ 2,428 $ 93 $ 3,388 $ - $ 48,330
-----------------------------------------------------------------------------------------------
NONINTEREST INCOME
Noninterest Income-External
Customers $ 10,153 $ 996 $ 14,589 $ 846 $ 5,579 $ 110
Intersegment Noninterest Income 892 983 45 - - 808
-----------------------------------------------------------------------------------------------
Total Noninterest Income $ 11,045 $ 1,979 $ 14,634 $ 846 $ 5,579 $ 918 $ (2,728) $ 32,273
-----------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Depreciation and Amortization $ 1,890 $ 245 $ 225 $ 4 $ 5 $ 2,221
Direct Expense 17,083 7,355 9,427 1,022 530 18,337
Overhead and Support 13,401 3,128 3,061 455 22 (20,067)
-----------------------------------------------------------------------------------------------
Total Noninterest Expense $ 32,374 $ 10,728 $ 12,713 $ 1,481 $ 557 $ 491 $ (2,728) $ 55,616
-----------------------------------------------------------------------------------------------
Income (Loss) Before Taxes and
Minority Interest $ 9,608 $ (135) $ 4,791 $ 1,793 $ 5,115 $ 3,815 $ - $ 24,987
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
Total Average Assets $2,795,051 $ 927,655 $ 107,253 $ 2,380,600 $ 70,745 $ 942,014 $(1,564,941) $5,658,377
===================================================================================================================================
-10-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
===================================================================================================================================
SIX MONTHS RIGGS RIGGS
ENDED INTERNATIONAL RIGGS & CAPITAL NATIONAL
JUNE 30, 2001 BANKING BANKING COMPANY TREASURY PARTNERS OTHER RECONCILIATION CORPORATION
-----------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME
Interest Income $ 91,005 $ 25,170 $ 2,529 $ 65,422 $ 245 $ 21,615
Interest Expense 29,297 32,826 4,915 20,794 - 22,040
Funds Transfer Income (Expense) 2,205 26,579 8,609 (47,853) 92 10,368
-----------------------------------------------------------------------------------------------
Net Interest Income (Loss),
Tax-Equivalent 63,913 18,923 6,223 (3,225) 337 9,943
Provision for Loan Losses 3,444 (3,559) - - - -
Tax Equivalent Adjustment (1,237) - - - - -
-----------------------------------------------------------------------------------------------
Net Interest Income (Loss) $ 66,120 $ 15,364 $ 6,223 $ (3,225) $ 337 $ 9,943 $ - $ 94,762
-----------------------------------------------------------------------------------------------
NONINTEREST INCOME
Noninterest Income-External
Customers $ 21,011 $ 1,961 $ 27,498 $ 1,882 $(13,877) $ 11,513
Intersegment Noninterest Income 1,682 3,610 1,252 - - 1,282
-----------------------------------------------------------------------------------------------
Total Noninterest Income $ 22,693 $ 5,571 $ 28,750 $ 1,882 $(13,877) $ 12,795 $ (7,826) $ 49,988
-----------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Depreciation and Amortization $ 2,137 $ 697 $ 424 $ 8 $ 14 $ 4,615
Direct Expense 34,089 19,618 19,317 1,974 5,049 33,566
Overhead and Support 26,142 6,421 5,005 1,152 190 (38,911)
-----------------------------------------------------------------------------------------------
Total Noninterest Expense $ 62,368 $ 26,736 $ 24,746 $ 3,134 $ 5,253 $ (730)$ (7,826) $ 113,681
-----------------------------------------------------------------------------------------------
Income (Loss) Before Taxes and
Minority Interest $ 26,445 $ (5,801) $ 10,227 $ (4,477) $(18,793) $ 23,468 $ - $ 31,069
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
Total Average Assets $2,692,797 $ 849,759 $ 94,752 $2,409,658 $ 90,583 $ 873,312 $(1,648,845) $5,362,016
===================================================================================================================================
-11-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
===================================================================================================================================
SIX MONTHS RIGGS RIGGS
ENDED INTERNATIONAL RIGGS & CAPITAL NATIONAL
JUNE 30, 2000 BANKING BANKING COMPANY TREASURY PARTNERS OTHER RECONCILIATION CORPORATION
-----------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME
Interest Income $ 98,750 $ 31,957 $ 2,947 $ 74,799 $ - $ 23,729
Interest Expense 29,151 41,328 5,854 29,597 - 27,361
Funds Transfer Income (Expense) (7,520) 27,481 8,751 (38,480) 145 9,623
-----------------------------------------------------------------------------------------------
Net Interest Income (Loss),
Tax-Equivalent 62,079 18,110 5,844 6,722 145 5,991
Provision for Loan Losses (300) (703) - - - -
Tax Equivalent Adjustment (1,125) - - - - -
-----------------------------------------------------------------------------------------------
Net Interest Income (Loss) $ 60,654 $ 17,407 $ 5,844 $ 6,722 $ 145 $ 5,991 $ - $ 96,763
-----------------------------------------------------------------------------------------------
NONINTEREST INCOME
Noninterest Income-External
Customers $ 19,670 $ 2,030 $ 28,624 $ 1,783 $ 12,616 $ 91
Intersegment Noninterest Income 1,778 2,070 132 1 - 1,608
-----------------------------------------------------------------------------------------------
Total Noninterest Income $ 21,448 $ 4,100 $ 28,756 $ 1,784 $ 12,616 $ 1,699 $ (5,589) $ 64,814
-----------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Depreciation and Amortization $ 3,782 $ 489 $ 444 $ 9 $ 10 $ 4,426
Direct Expense 33,366 14,649 18,276 2,039 1,052 36,509
Overhead and Support 26,149 6,260 6,241 852 39 (39,543)
-----------------------------------------------------------------------------------------------
Total Noninterest Expense $ 63,297 $ 21,398 $ 24,961 $ 2,900 $ 1,101 $ 1,392 $ (5,589) $ 109,460
-----------------------------------------------------------------------------------------------
Income (Loss) Before Taxes and
Minority Interest $ 18,805 $ 109 $ 9,639 $ 5,606 $ 11,660 $ 6,298 $ - $ 52,117
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
Total Average Assets $2,804,332 $ 944,652 $ 103,316 $2,438,887 $ 60,854 $ 941,686 $(1,572,515) $5,721,212
===================================================================================================================================
NOTE 5: ACCOUNTING FOR DERIVATIVES
Adoption of SFAS No. 133
We adopted SFAS No. 133, "Accounting for Derivative Investments and Hedging
Activities", as amended by SFAS No.138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of FASB Statement No.
133", as of January 1, 2001. The adoption of SFAS No. 133 resulted in a
cumulative charge of $8 thousand, recorded as a component of Other Noninterest
Income, to reflect the fair value of derivatives designated as fair-value hedges
and fair values of related hedged items. In addition, we recorded a cumulative
net of tax charge to Other Comprehensive Income of $751 thousand to recognize at
fair value all derivatives that are designated as cash flow hedges and net
investment hedges.
Derivative Instruments and Hedging
We maintain a risk management strategy that includes the use of derivative
instruments to reduce unplanned earnings and equity fluctuations caused by
interest rate volatility and foreign exchange fluctuation. We attempt to
minimize our sensitivity to rate volatility by altering the repricing or
maturity characteristics of certain assets and liabilities so that income is not
materially impacted by unexpected rate movements.
Use of derivative instruments is a component of our overall risk management
strategy and is utilized in accordance with a formal policy that is monitored by
a committee which has delegated authority over our interest rate risk management
function.
The derivative instruments that we utilize include interest rate swaps, futures
contracts and options contracts that relate to the pricing of specific assets
and liabilities. Interest rate swaps involve the exchange of fixed and variable
rate interest payments between two parties based upon a notional principal
amount and maturity date. Interest rate futures generally involve
exchange-traded contracts to buy or sell U.S. Treasury bonds or notes in the
future at specified prices. Interest rate options represent contracts that allow
the owner the option to either receive cash or purchase, sell or enter into a
financial
-12-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
instrument at a specified price within a specified time period. Certain of these
contracts grant the right to enter into interest rate swaps and cap and floor
agreements with the writer of the option.
We also enter into foreign exchange derivative contracts, including foreign
currency forward contracts, to manage our exchange risk associated with the
translation of foreign currency into U. S. dollars.
We are exposed to credit and market risk as a result of our use of derivative
instruments. If the fair value of the derivative contract is positive, the
counterparty owes us and, hence, a repayment risk exists. If the fair value of
the derivative contract is negative, we owe the counterparty and, therefore,
there is no repayment risk. We minimize repayment risk by entering into
transactions with financially stable counterparties that are specified by our
policy and reviewed periodically by our credit committee. We require that
derivative contracts be governed by an International Swaps and Derivative Master
Agreement and, depending on the nature of the agreement, bilateral collateral
arrangements also may be obtained. When we have multiple derivative transactions
with the counterparty, the net mark-to-market exposure represents the netting of
positive and negative exposures with the same counterparty. The net
mark-to-market exposure with a counterparty is a measure of credit risk when
there is a legally enforceable master netting agreement between us and the
counterparty. We use master netting agreements with the majority of our
counterparties.
Market risk is the adverse effect that a change in interest rates or comparative
currency values has on the fair value of a financial instrument or expected cash
flows. We manage the market risk associated with interest rate and foreign
exchange hedge contracts by establishing formal policy limits concerning the
types and degree of risk that may be undertaken. Our Treasury group monitors
compliance with this policy.
Accounting for Derivatives
All derivatives are recognized on the Consolidated Statements of Condition at
fair value. When a derivative contract is entered into, we first determine
whether or not it qualifies as a hedge. If it does, we designate the derivative
as (1) a hedge of the fair value of a recognized asset or liability, (2) a hedge
of actual or forecasted cash flows or (3) a hedge of a net investment in a
foreign operation. Changes in the fair value of a derivative that is designated
a fair value hedge and qualifies as a highly effective hedge, along with any
gain or loss on the hedged asset or liability attributable to the hedged risk,
are recorded in current period earnings. The effective portion of changes in
fair value of a derivative that is designated as a cash flow hedge and that
qualifies as a highly effective hedge is recorded in Other Comprehensive Income
until such time as periodic settlements on a variable rate hedged item are
recorded in earnings. The ineffective portion of changes in fair value of
cash-flow derivatives is recorded in current period earnings. Changes in the
fair value of a derivative designated as a foreign currency hedge and that
qualifies as a highly effective hedge, are either recorded in current earnings,
Other Comprehensive Income, or both, depending on whether the transaction is a
fair value hedge or a cash flow hedge. If a derivative is used as a hedge of a
net investment in a foreign operation, changes in its fair value, to the extent
effective as a hedge, are recorded in Other Comprehensive Income.
When entering into hedging transactions, we document the relationships between
hedging instruments and hedged items, as well as the risk management objective
and strategy. This process links all derivatives that are designated fair value,
cash flow or foreign currency hedges to specific assets and liabilities on the
Consolidated Statements of Condition. We assess, both at inception and on an
on-going basis, the effectiveness of all hedges in offsetting changes in fair
values or cash flows of hedged items.
We discontinue hedge accounting prospectively when (1) the derivative is no
longer effective in offsetting changes in fair values or cash flows of a hedged
item, (2) the derivative matures or is sold, terminated or exercised, or (3) the
derivative is dedesignated as a hedge instrument.
When hedge accounting is discontinued because the derivative no longer qualifies
as an effective fair value hedge, it will continue to be carried on the
Consolidated Statements of Condition at its fair value and the hedged asset or
liability will no longer be adjusted to reflect changes in fair value. When
hedge accounting is discontinued because it is probable that a forecasted
transaction will not occur, we will continue to carry the derivative on the
Consolidated Statements of Condition at its fair value and any gains or losses
accumulated in Other Comprehensive Income will be recognized immediately in
earnings. In all situations in which hedge accounting is discontinued, the
derivative will be carried at fair value with changes in fair value recognized
in income.
Fair-Value Hedges
We enter into pay fixed, receive floating interest rate swaps to hedge changes
in fair value of fixed rate loans attributable to changes in market interest
rates.
For the quarter ended June 30, 2001, we recognized a net loss of $71 thousand
which represented the ineffective portion of all fair value hedges, and for the
six months ended June 30, 2001, we recognized a net loss of $93 thousand. These
amounts are included in Other Noninterest Income in the Consolidated Statements
of Income.
-13-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Cash-Flow Hedges
We use interest rate swaps to hedge the exposure to variability in expected
future cash outflows on floating rate liabilities attributable to changes in
interest rates. We also use foreign currency forward contracts to hedge the
foreign exchange risk associated with principal and interest payments on loans
denominated in a foreign currency.
For the quarter and for the six months ended June 30, 2001, there was no impact
to Other Noninterest Income in the Consolidated Statements of Income for the
ineffective portion of all cash flow hedges.
Gains or losses on derivatives that are reclassified from Accumulated Other
Comprehensive Income to income are included in the line item in the Consolidated
Statements of Income in which the income or expense related to the hedged item
is recorded. As of June 30, 2001, $277 thousand of deferred net losses on
derivative instruments in Accumulated Other Comprehensive Income is expected to
be reclassified as expense during the next twelve months. The maximum term over
which we are hedging our exposure to the variability of cash flows was 48 months
as of June 30, 2001.
Hedges of Net Investments in Foreign Operations
We use forward exchange contracts to hedge substantially all of our net
investment in a foreign subsidiary. The purpose of this hedge is to protect
against adverse movements in currency exchange rates. As of June 30, 2001, $577
thousand of net losses related to the existing net investment forward exchange
contract are included in Accumulated Other Comprehensive Income.
Other
As of June 30, 2001, we had certain derivative instruments used to manage
interest rate risk that were not designated to specific hedge relationships. The
carrying value of these items is a net liability of $619 thousand and they are
marked to market through current period earnings.
NOTE 6: NEW FINANCIAL ACCOUNTING STANDARDS
SFAS No. 141, "Business Combinations," was issued in June 2001. SFAS No. 141
requires corporations to account for business combinations using the purchase
method. The Statement also requires that intangible assets resulting from a
business combination, if they can be identified and result from contractual or
other legal rights, be recognized as assets apart from goodwill. Two criteria,
the contractual-legal criterion or the separability criterion, must be met
before separate recognition can occur. Finally, the Statement requires
disclosure of the primary reasons for the business combination and the
allocation of the purchase price paid to the assets acquired and liabilities
assumed by major balance sheet caption. Implementation of SFAS No. 141 applies
to all business combinations we initiate after June 30, 2001.
SFAS No. 142, "Goodwill and Other Intangible Assets," was issued in June 2001.
SFAS No. 142 discontinues amortization of intangible assets unless they have
finite useful lives. Instead, intangible assets will be tested at least annually
for impairment by comparing their fair values with their recorded amounts. The
Statement also requires disclosure about the changes in the carrying amounts of
goodwill from period to period, the carrying amount of intangible assets by
major intangible asset class for those subject to and not subject to
amortization, and the estimated intangible asset amortization expense for the
next five years. SFAS No. 142 is required to be implemented starting with fiscal
years beginning after December 15, 2001, therefore we will discontinue the
amortization of goodwill beginning on January 1, 2002. Goodwill totaled $7.0
million as of June 30, 2001. For the six months ended June 30, 2001,
amortization expense was $322 thousand. For comparative purposes, goodwill
amortization expense was $322 thousand and $645 thousand for the six and twelve
months ended June 30, 2000.
In July 2001, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 102 ("SAB 102"), "Selected Loan Loss Allowance
Methodology and Documentation Issues." SAB 102 represents the SEC staff's views
on the development, documentation and application of a systematic methodology
for determining the required allowance for loan losses. We do not anticipate any
significant impact on either the way we determine the adequacy of our allowance
for loan losses or future provisions for loan losses as a result of SAB 102.
-14-
RIGGS NATIONAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
We recorded net income of $4.2 million, or $.14 per diluted share, for the
second quarter of 2001, compared to $10.3 million, or $.36 per diluted share, in
the second quarter of 2000. The decrease resulted primarily from losses in our
venture capital segment of $6.0 million in the second quarter of this year
compared to $5.6 million in venture capital gains in the second quarter a year
ago. These losses were partially offset by a $1.2 million gain from the
settlement of a significant estate and an additional $1.0 million in investment
gains on the sale of our investment in Concord EFS, Inc., an ATM network
exchange company. We had already recorded $10.3 million in investment gains on
the investment in Concord EFS, Inc. in the first quarter of this year.
For the six months ended June 30, 2001, we had net income of $9.8 million, or
$.34 per diluted share, compared with net income of $21.9 million, or $.77 per
diluted share, for the first half of 2000. Venture capital losses totaled $13.9
million, compared to $12.6 million in venture capital gains for the first six
months of 2000. The 2001 losses were partially offset by $11.3 million in gains
from the sale of our Concord EFS, Inc. investment.
Return on average assets was .31% and .37% for the three and six months ended
June 30, 2001, compared to .73% and .77% for the same periods a year ago. Return
on average shareholders' equity was 4.31% and 5.05% for the three and six months
ended June 30, 2001, and 11.88% and 12.78% for the three and six months ended
June 30, 2000.
NET INTEREST INCOME
Net interest income on a tax-equivalent basis (net interest income plus an
amount equal to the tax savings on tax-exempt interest) totaled $49.1 million in
the second quarter of 2001, a decrease of $235 thousand from the $49.3 million
for the same quarter in 2000. For the six months ended June 30, 2001, net
interest income was $96.1 million, a $2.8 million decrease from the $98.9
million recorded for the first six months of 2000. The decrease was primarily
due to a reduction in interest income, which was $21.5 million less than a year
ago. Decreases in interest rates contributed to the decline, but decreases in
average balances, primarily in the loan portfolio, were the primary reason. The
decrease in interest income was partially offset by a decrease in interest
expense of $18.7 million, primarily attributable to decreases in rates paid on
time deposits and other short-term borrowings.
NET INTEREST INCOME CHANGES (1)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2001 VS 2000 JUNE 30, 2001 VS 2000
------------------------------------------------------------------------
(TAX-EQUIVALENT BASIS) DUE TO DUE TO TOTAL DUE TO DUE TO TOTAL
(IN THOUSANDS) RATE VOLUME CHANGE RATE VOLUME CHANGE
===================================================================================================================================
Interest Income:
Loans, Including Fees $(3,192) $ (4,354) $ (7,546) $ (3,480) $ (9,762) $ (13,242)
Securities Available for Sale (1,142) (1,551) (2,693) (1,757) (2,674) (4,431)
Time Deposits with Other Banks (1,647) (243) (1,890) (1,730) (672) (2,402)
Federal Funds Sold and Reverse
Repurchase Agreements (1,878) 1,145 (733) (2,039) 625 (1,414)
-----------------------------------------------------------------------------------------------------------------------------------
Total Interest Income (7,859) (5,003) (12,862) (9,006) (12,483) (21,489)
Interest Expense:
Interest-Bearing Deposits (7,343) (954) (8,297) (8,806) (3,298) (12,104)
Repurchase Agreements and Other
Short-Term Borrowings (2,441) (1,889) (4,330) (2,330) (4,278) (6,608)
-----------------------------------------------------------------------------------------------------------------------------------
Total Interest Expense (9,784) (2,843) (12,627) (11,136) (7,576) (18,712)
===================================================================================================================================
Net Interest Income $ 1,925 $ (2,160) $ (235) $ 2,130 $ (4,907) $ (2,777)
(1) - The dollar amount of changes in interest income and interest
expense attributable to changes in rate/volume (change in rate
multiplied by change in volume) has been allocated between rate and
volume variances based on the percentage relationship of such
variances to each other. Income and rates are computed on a
tax-equivalent basis using a Federal income tax rate of 35% and local
tax rates as applicable.
-15-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
AVERAGE CONSOLIDATED STATEMENTS OF CONDITION AND RATES
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 2001 JUNE 30, 2000
------------------------------------------------------------------------
(TAX-EQUIVALENT BASIS) (1) AVERAGE INCOME/ AVERAGE INCOME/
(IN THOUSANDS) BALANCE EXPENSE RATE BALANCE EXPENSE RATE
===================================================================================================================================
ASSETS
Loans, Including Fees (2) $2,893,172 $52,381 7.26% $3,121,795 $ 59,927 7.72%
Securities Available for Sale (3) 1,145,459 16,885 5.91 1,249,821 19,578 6.30
Time Deposits with Other Banks 335,656 3,617 4.32 351,907 5,507 6.29
Federal Funds Sold and Reverse Repurchase Agreements 420,780 4,626 4.41 337,812 5,359 6.38
-----------------------------------------------------------------------------------------------------------------------------------
Total Earning Assets and Average Rate Earned (5) 4,795,067 77,509 6.48 5,061,335 90,371 7.18
Reserve for Loan Losses (34,619) (38,102)
Cash and Due from Banks 138,987 140,758
Other Assets 457,148 494,386
===================================================================================================================================
Total Assets $5,356,583 $5,658,377
LIABILITIES, MINORITY INTEREST AND
SHAREHOLDERS' EQUITY
Interest-Bearing Deposits $3,494,631 $22,552 2.59% $3,617,306 $ 30,849 3.43%
Repurchase Agreements and Other Short-Term Borrowings 443,075 4,282 3.88 625,305 8,612 5.54
Long-Term Debt 66,525 1,618 9.76 66,525 1,618 9.78
-----------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Funds and Average Rate Paid 4,004,231 28,452 2.85 4,309,136 41,079 3.83
Demand Deposits (4) 515,509 551,548
Other Liabilities 97,217 97,865
Minority Interest in Preferred Stock of Subsidiaries 350,000 350,000
Shareholders' Equity 389,626 349,828
===================================================================================================================================
Total Liabilities, Minority Interest and
Shareholders' Equity $5,356,583 $5,658,377
===================================================================================================================================
NET INTEREST INCOME AND SPREAD $49,057 3.63% $ 49,292 3.35%
===================================================================================================================================
NET INTEREST MARGIN ON EARNING ASSETS 4.10% 3.92%
(1) - Income and rates are computed on a tax-equivalent basis using a Federal
income tax rate of 35% and local tax rates as applicable.
(2) - Nonperforming loans are included in average balances used to determine
rates.
(3) - The averages and rates for the securities available for sale portfolio are
based on amortized cost.
(4) - Demand deposit balances for all periods presented exclude certain accounts
transferred to the money market classification to reduce the level of deposit
reserves required.
(5) - Excludes venture capital investments
-16-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
AVERAGE CONSOLIDATED STATEMENTS OF CONDITION AND RATES
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2001 JUNE 30, 2000
------------------------------------------------------------------------
(TAX-EQUIVALENT BASIS) (1) AVERAGE INCOME/ AVERAGE INCOME/
(IN THOUSANDS) BALANCE EXPENSE RATE BALANCE EXPENSE RATE
===================================================================================================================================
ASSETS
Loans, Including Fees (2) $2,900,659 $106,599 7.41% $3,151,310 $119,841 7.65%
Securities Available for Sale (3) 1,190,524 35,486 6.01 1,276,771 39,917 6.29
Time Deposits with Other Banks 345,191 8,694 5.08 368,337 11,096 6.06
Federal Funds Sold and Reverse Repurchase Agreements 357,704 8,750 4.93 335,725 10,164 6.09
-----------------------------------------------------------------------------------------------------------------------------------
Total Earning Assets and Average Rate Earned 4,794,078 159,529 6.71 5,132,143 181,018 7.09
Reserve for Loan Losses (35,287) (39,810)
Cash and Due from Banks 136,329 142,715
Other Assets 466,896 486,164
===================================================================================================================================
Total Assets $5,362,016 $5,721,212
LIABILITIES, MINORITY INTEREST AND
SHAREHOLDERS' EQUITY
Interest-Bearing Deposits $3,462,296 $ 49,010 2.85% $3,619,555 $ 61,114 3.40%
Repurchase Agreements and Other Short-Term Borrowings 488,120 11,169 4.61 671,446 17,777 5.32
Long-Term Debt 66,525 3,236 9.81 66,525 3,236 9.78
-----------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Funds and Average Rate Paid 4,016,941 63,415 3.18 4,357,526 82,127 3.79
Demand Deposits (4) 512,452 582,687
Other Liabilities 91,852 86,782
Minority Interest in Preferred Stock of Subsidiaries 350,000 350,000
Shareholders' Equity 390,771 344,217
===================================================================================================================================
Total Liabilities, Minority Interest and
Shareholders' Equity $5,362,016 $5,721,212
===================================================================================================================================
NET INTEREST INCOME AND SPREAD $ 96,114 3.53% $ 98,891 3.30%
===================================================================================================================================
NET INTEREST MARGIN ON EARNING ASSETS 4.04% 3.87%
(1) - Income and rates are computed on a tax-equivalent basis using a Federal
income tax rate of 35% and local tax rates as applicable.
(2) - Nonperforming loans are included in average balances used to determine
rates.
(3) - The averages and rates for the securities available for sale portfolio are
based on amortized cost.
(4) - Demand deposit balances for all periods presented exclude certain accounts
transferred to the money market classification to reduce the level of deposit
reserves required.
(5) - Excludes venture capital investments
-17-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
NONINTEREST INCOME
Noninterest income for the second quarter of 2001 totaled $22.3 million, a
decrease of $10.0 million from the $32.3 million in the second quarter of 2000.
Contributing to the decrease was $6.0 million in venture capital losses. This
compares to a gain of $5.6 million in the second quarter of 2000. The decrease
was partially offset by an additional $1.0 million on the sale of our investment
in Concord EFS, Inc., an ATM network exchange company which we sold in June
2001, and a $1.2 million gain from the settlement of a significant estate by our
private client services division.
For the six months ended June 30, 2001, we recorded $50.0 million in noninterest
income. This compares to $64.8 million earned in the same period a year ago. The
decrease was mostly due to $13.9 million in venture capital losses for the first
half of 2001, compared to venture capital gains of $12.6 million in the first
half of 2000. This decrease was partially offset by total securities gains on
the Concord EFS, Inc. investment of $11.3 million recorded for the first half of
2001, and the gain on the estate settlement previously mentioned.
NONINTEREST EXPENSE
Noninterest expense for the three months ended June 30, 2001, was $57.2 million,
an increase of $1.6 million from the $55.6 million reported for the three months
ended June 30, 2000. This increase was due principally to the start-up costs of
$1.1 million associated with our international private banking initiative.
Start-up costs of $500 thousand associated with the formation of our second
venture capital subsidiary, Riggs Capital Partners II, LLC, also contributed to
the increase.
For the six months ended June 30, 2001, noninterest expense totaled $113.7
million, compared to $109.5 million for the same period a year ago. As mentioned
in the preceding paragraph, start-up costs associated with our international
private banking group of $3.0 million and $1.0 million for Riggs Capital
Partners II, LLC, were the principal reasons for the increase.
-18-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
FINANCIAL CONDITION
SECURITIES
Securities available for sale totaled $1.13 billion as of June 30, 2001,
compared to $1.24 billion as of year-end 2000 and $1.31 billion as of June 30,
2000. The activity for the first six months included purchases of securities
available for sale totaling $1.71 billion, which were more than offset by
maturities and calls, principal payments and sales of securities available for
sale totaling $1.86 billion. The weighted-average duration and yield for the
portfolio, adjusted for anticipated prepayments, were approximately 3.3 years
and 5.89%, respectively, as of June 30, 2001. As of June 30, 2000, the
weighted-average duration and yield were 3.4 years and 6.06%, respectively.
In June 2001 we sold our investment in 243,849 shares of Concord EFS, Inc. At
the time of sale we recognized an additional gain on the investment of $1.0
million. In the first quarter of 2001 we recognized a $10.3 million gain as a
result of Concord EFS's acquisition of STAR Systems, Inc., an investment we had
previously accounted for at cost.
JUNE 30, 2001 JUNE 30, 2000 DECEMBER 31, 2000
------------------------------------------------------------------------
AMORTIZED MARKET/ AMORTIZED MARKET/ AMORTIZED MARKET/
AVAILABLE FOR SALE COST BOOK VALUE COST BOOK VALUE COST BOOK VALUE
===================================================================================================================================
(IN THOUSANDS)
U.S. Treasury Securities $ 179,583 $ 174,545 $ 313,826 $ 299,273 $ 313,609 $ 309,117
Government Agencies Securities 428,858 429,207 475,239 470,976 375,388 374,836
Mortgage-Backed Securities 486,364 478,812 511,911 481,790 511,932 502,642
Other Securities 49,331 49,331 58,111 58,111 53,378 53,378
===================================================================================================================================
Total $1,144,136 $1,131,895 $1,359,087 $1,310,150 $1,254,307 $1,239,973
LOANS
As of June 30, 2001, loans outstanding totaled $2.93 billion, decreasing from
the June 30, 2000 and December 31, 2000 balances of $3.14 and $2.94 billion,
respectively. The decreases were primarily in commercial and financial, home
equity/consumer and foreign loans from both prior periods. The majority of the
decrease in commercial and financial loans from both prior periods was in
syndicated loans. Syndicated loan commitments decreased $155.1 million from June
30, 2000 and $57.7 million from December 31, 2000, respectively. It is part of
our strategy generally to no longer participate in these types of loans, except
where the borrower is in our primary market area. These decreases were partially
offset by increases in real estate-commercial/construction loans and loans
available for sale.
During the second quarter of 2000, we began originating mortgage loans for sale
in the secondary market. As of June 30, 2001, residential real estate loans
originated and held for sale totaled $18.3 million. As of June 30 and December
31, 2000, these loans totaled $7.8 and $15.4 million, respectively.
JUNE 30, JUNE 30, DECEMBER 31,
(IN THOUSANDS) 2001 2000 2000
=======================================================================================================================
Commercial and Financial $ 428,706 $ 630,296 $ 479,443
Real Estate - Commercial/Construction 493,836 421,885 440,900
Residential Mortgage 1,172,765 1,204,924 1,168,243
Loans Available for Sale 18,303 7,803 15,433
Home Equity 322,032 339,168 335,825
Consumer 66,325 70,686 68,010
Foreign 432,094 470,994 437,825
-----------------------------------------------------------------------------------------------------------------------
Total Loans 2,934,061 3,145,756 2,945,679
Net Deferred Loan Fees,
Premiums and Discounts (4,680) (5,315) (4,941)
=======================================================================================================================
Loans $2,929,381 $3,140,441 $2,940,738
-19-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
RESERVE FOR LOAN LOSSES
Changes in the reserve for loan losses are summarized as follows: SIX MONTHS ENDED
JUNE 30,
------------------------
(IN THOUSANDS) 2001 2000
===================================================================================================================================
Balance, January 1 $ 36,197 $ 41,455
Provision for loan losses 115 1,003
Loans charged-off 2,506 6,411
Less: Recoveries on charged-off loans 828 1,418
-----------------------------------------------------------------------------------------------------------------------------------
Net loan charge-offs (recoveries) 1,678 4,993
Foreign exchange translation adjustments (523) (429)
===================================================================================================================================
Balance, June 30 $ 34,111 $ 37,036
As of June 30, 2001, the reserve for loan losses was $34.1 million, a decrease
of $2.9 million from the June 30, 2000 balance. In the first quarter of 2001,
our domestic reserve needs were reduced by $3.4 million, primarily due to the
sale, at par value, of a $25.0 million loan previously classified as
non-performing. However, we provided approximately $3.5 million for loan losses
primarily associated with a single loan at our London operations. A reduction in
our loan portfolio balance and improvements in credit quality also reduced
reserve needs.
ASSET QUALITY
NONPERFORMING ASSETS
Nonperforming assets, which include nonaccrual loans, renegotiated loans and
other real estate owned (net of reserves), totaled $14.4 million as of June 30,
2001, a $22.8 million decrease from the year-end 2000 total of $37.2 million and
a $27.4 million decrease from the June 30, 2000 total of $41.7 million. The
decrease in nonperforming assets from both periods was mainly due to the
aforementioned sale of a $25.0 million nonaccrual loan. From year-end 2000,
further decreases were attributable to a $713 thousand charge off on a domestic
loan and payments on three nonperforming London loans totaling $1.0 million. The
decrease was partially offset by the addition of two nonaccrual loans at our
London operation in the first and second quarters of 2001. These loans were in
the amounts of $3.3 and $1.4 million, respectively.
From June 30, 2000, additional decreases were due to charge-offs of $2.7 million
on three domestic and two London based loans in the third and fourth quarters of
2000 and the first quarter of 2001. These additional decreases were partially
offset by the $3.3 and $1.4 million London loans mentioned previously.
As a result of the sale of the $25.0 million loan, the reserve needs for
domestic loan losses were reduced by approximately $3.4 million, which was more
than offset by a $3.5 million provision for loan losses associated with the $3.3
million London loan. The assigned reserve for loan losses for impaired loans was
$5.6 million as of June 30, 2001.
PAST-DUE AND POTENTIAL PROBLEM LOANS
Past-due loans consist of residential real estate loans, commercial and
industrial loans, and consumer loans that are in the process of collection and
that are accruing interest. Past-due loans increased $404 thousand during the
first six months of 2001 to $11.5 million, while potential problem loans
decreased $6.9 million during the same period. The decrease in potential problem
loans resulted from the removal of two loans previously considered potential
problems at December 31, 2000 at our London operations. One loan in the amount
of $4.0 million was upgraded, while the second, for $4.5 million, was placed on
nonaccrual. The decrease was partially offset by the addition of two loans
totaling $1.1 million in London.
-20-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
NONPERFORMING ASSETS AND PAST-DUE LOANS
JUNE 30, JUNE 30, DECEMBER 31,
(IN THOUSANDS) 2001 2000 2000
-----------------------------------------------------------------------------------------------------------------------
NONPERFORMING ASSETS:
Nonaccrual Loans (1) $ 12,806 $ 39,751 $ 35,185
Renegotiated Loans 647 1,055 853
Other Real Estate Owned, Net 908 908 1,133
-----------------------------------------------------------------------------------------------------------------------
Total Nonperforming Assets $ 14,361 $ 41,714 $ 37,171
PAST-DUE LOANS (2) $ 47,917 $ 55,424 $ 53,098
PAST-DUE LOANS (3) $ 11,523 $ 10,419 $ 11,119
POTENTIAL PROBLEM LOANS $ 1,789 $ 5,206 $ 8,728
(1)Loans that are in default in either principal or interest for 90 days or more
that are not well-secured and in the process of collection, or that are, in
management's opinion, doubtful as to the collectibility of either interest or
principal.
(2)Loans contractually past due 30-89 days or more in principal or interest.
(3)Loans contractually past due 90 days or more in principal or interest that
are well-secured and in the process of collection.
DEPOSITS
Deposits are our primary and most stable source of funds. Deposits totaled $3.99
billion as of June 30, 2001, a decrease of $88.0 million from the December 31,
2000 total of $4.08 billion, and a decrease of $264.4 million from the June 30,
2000 deposit total of $4.25 billion. For both periods, deposits decreased in
time deposits in domestic offices and savings and NOW accounts. Balances in time
deposits in foreign offices and money market accounts fluctuated. Demand
deposits decreased as balances were swept into money market accounts.
SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term borrowings decreased $140.3 million from the year-end 2000 balance
and $193.8 million from the June 30, 2000 balance. The decrease from June 30,
2000 reflects $200 million in advances from the Federal Home Loan Bank of
Atlanta (FHLB), which was called in the third quarter of last year. Short-term
borrowings are an additional source of funds that we have utilized to meet
certain asset/liability and daily cash management objectives and are used to
generate cash and maintain adequate levels of liquidity.
JUNE 30, JUNE 30, DECEMBER 31,
(IN THOUSANDS) 2001 2000 2000
=======================================================================================================================
Repurchase Agreements and Other Short-Term Borrowings $ 442,558 $ 636,377 $ 582,832
Subordinated Debentures due 2009 66,525 66,525 66,525
=======================================================================================================================
Total Short-Term Borrowings and Long-Term Debt $ 509,083 $ 702,902 $ 649,357
-21-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
LIQUIDITY
We seek to maintain sufficient liquidity to meet the needs of depositors,
borrowers and creditors at a reasonable cost and without undue stress on our
operations. Our Asset/Liability Committee actively analyzes and manages
liquidity in coordination with other areas of the organization (see "Sensitivity
to Market Risk"). As of June 30, 2001, our liquid assets, on a consolidated
basis, which include cash and due from banks, Government obligations and other
securities, federal funds sold, reverse repurchase agreements and time deposits
at other banks, totaled $2.04 billion (38% of total assets). This compares with
$2.16 billion (39%) as of December 31, 2000, and $2.18 billion (38%) as of June
30, 2000. As of June 30, 2001, $713.4 million of our assets were pledged to
secure deposits and other borrowings. This compares with pledged assets of
$971.4 million as of December 31, 2000, and $977.6 million as of June 30, 2000.
Our liquidity position is maintained by a stable source of funds from our core
deposit relationships. We have other sources of funds, such as short-term
revolving credit lines available from several Federal Home Loan Banks and other
financial institutions. In addition, we have a line of credit available through
our membership in the FHLB. As of June 30, 2001, December 31, 2000, and June 30,
2000, short-term credit lines and the FHLB Atlanta line of credit available
totaled approximately $1.34 billion, $1.34 billion, and $1.56 billion,
respectively. As of June 30, 2001, December 31, 2000, and June 30, 2000, the
amounts outstanding under these lines were $28.1 million, $17.9 million, and
$214.3 million, respectively. The decrease from June 2000 was due to $200
million in borrowings which were called in July of that year.
SHAREHOLDERS' EQUITY AND REGULATORY CAPITAL
Total shareholders' equity as of June 30, 2001, was $388.7 million, an increase
of $6.0 million from year-end 2000 and $25.7 million from a year ago. The
increase from year-end was primarily the result of net income of $9.8 million
and a reduction in unrealized securities losses of $1.4 million, after tax. This
increase was partially offset by cash dividends paid of $2.9 million, and
unrealized losses on our derivatives and foreign exchange translation
adjustments totaling $3.1 million. The increase from June 30, 2000 was primarily
the result of net income of $9.5 million, and a reduction in unrealized
securities losses of $23.8 million. $5.8 million in cash dividends, and $3.4
million in unrealized losses on derivatives and foreign exchange translation
adjustments partially offset this increase. For more information on our
securities portfolio, see the discussion under "Securities" in the Management's
Discussion and Analysis of Financial Condition and Results of Operation in this
Form 10-Q.
Book value per common share was $13.65 as of June 30, 2001, compared to $13.48
as of year-end 2000 and $12.81 as of June 30, 2000. The increases in book value
from June 30th and year-end 2000 were primarily the result of the net income and
net unrealized securities gains described in the preceding paragraph.
Following are our capital ratios (as defined in the regulations) and those of
our banking subsidiary, Riggs Bank National Association (Riggs Bank N.A.) as of
June 30, 2001 and 2000, and December 31, 2000.
JUNE 30, JUNE 30, DECEMBER 31, REQUIRED
2001 2000 2000 MINIMUMS
===================================================================================================================================
RIGGS NATIONAL CORPORATION:
Tier I 16.61% 15.15% 15.92% 4.00%
Combined Tier I and Tier II 26.69 24.55 25.87 8.00
Leverage 9.79 9.12 9.47 4.00
RIGGS BANK N.A.:
Tier I 14.92 13.87 13.99 4.00
Combined Tier I and Tier II 16.06 15.01 15.18 8.00
Leverage 8.95 8.49 8.44 4.00
-22-
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
SENSITIVITY TO MARKET RISK
We are exposed to various market risks. Some of these risks, such as credit risk
and currency risk, are discussed in our Annual Report on Form 10-K. We have
determined that interest-rate risk has a material impact on our financial
performance, and as such we have established the Asset/Liability Committee
("ALCO") to manage interest-rate risk. The role of this committee is to manage
the asset/liability mix of our operations in an effort to provide a stable net
interest margin while maintaining liquidity and capital. This entails the
management of our overall risk in conjunction with the acquisition and
deployment of funds based upon ALCO's view of both current and prospective
market and economic conditions.
We manage our interest-rate risk through the use of an income simulation model,
which forecasts the impact on net interest income of a variety of different
interest rate scenarios. A "most likely" interest rate scenario is forecasted
based upon an analysis of current market conditions and expectations. The model
then evaluates the impact on net interest income of rates moving significantly
higher or lower than the "most likely" scenario. The results are compared to
risk tolerance limits set by corporate policy. The model's results as of June
30, 2001 and 2000 are shown in the following tables. Current policy establishes
limits for possible changes in net interest income for 12 and 36 month horizons.
The interest rate scenarios monitored by ALCO are based upon a 100 basis point
(1%) gradual increase or decrease in rates over a 12-month time period and a 300
basis point (3%) gradual increase or decrease in rates over a 36-month time
period.
INTEREST-RATE SENSITIVITY ANALYSIS (1)
MOVEMENTS IN INTEREST RATES FROM JUNE 30, 2001
===================================================================================================================================
SIMULATED IMPACT OVER SIMULATED IMPACT OVER
NEXT TWELVE MONTHS NEXT THIRTY-SIX MONTHS
-----------------------------------------------------------------------------------------------------------------------------------
(In Thousands) +100BP -100BP +300BP -300BP
-----------------------------------------------------------------------------------------------------------------------------------
Simulated Impact Compared With a
"Most Likely" Scenario:
Net Interest Income Increase/(Decrease) (0.4)% (0.4)% (0.0)% (1.6)%
Net Interest Income Increase/(Decrease) $ (732) $ (787) $ (181) $ (9,431)
MOVEMENTS IN INTEREST RATES FROM JUNE 30, 2000
===================================================================================================================================
SIMULATED IMPACT OVER SIMULATED IMPACT OVER
NEXT TWELVE MONTHS NEXT THIRTY-SIX MONTHS
-----------------------------------------------------------------------------------------------------------------------------------
(In Thousands) +100BP -100BP +300BP -300BP
-----------------------------------------------------------------------------------------------------------------------------------
Simulated Impact Compared With a
"Most Likely" Scenario:
Net Interest Income Increase/(Decrease) (1.0)% 2.3% (1.80)% 3.4%
Net Interest Income Increase/(Decrease) $(1,840) $4,348 $(10,660) $ 20,133
(1) Key Assumptions:
Assumptions with respect to the model's projections of the effect of changes in
interest rates on Net Interest Income include:
1. Target balances for various asset and liability classes, which are solicited
from the management of the various units of the Corporation.
2. Interest rate scenarios which are generated by ALCO for the "most likely"
scenario and are dictated by ALCO's policy for the alternative scenarios.
3. Spread relationships between various interest rate indices, which are
generated by the analysis of historical relationships and ALCO consensus.
4. Assumptions about the effect of embedded options and prepayment speeds:
instruments that are callable are assumed to be called at the first
opportunity if an interest rate scenario makes it advantageous for the owner
of the call to do so. Prepayment assumptions for mortgage products are
derived from accepted industry sources.
5. Reinvestment rates for funds replacing assets or liabilities that are assumed
(through early withdrawal, prepayment, calls, etc.) to run off the balance
sheet, which are generated by the spread relationships.
6. Maturity strategies with respect to assets and liabilities, which are
solicited from the management of the various units of the Corporation.
-23-
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK, CONTINUED
As of June 30, 2001, the forecasted impact of rates rising or falling 100 basis
points versus the "most likely" scenario over a 12-month time period was a
change in net interest income not exceeding 1%. For a 300 basis point movement
in rates versus the "most likely" scenario over a 36-month period, the impact on
net interest income did not exceed 2%. The results of the simulation for June
30, 2001 indicated that we were "liability sensitive" in a rising rate
environment and "asset sensitive" in a declining rate environment (due to floors
on deposit rates) over the 12 month time horizon. Over the 36-month time
horizon, we were "neutral" in a rising rate environment, and "asset sensitive"
in a declining rate environment due to the deposit floors previously mentioned.
We were within our policy guidelines for interest rates moving significantly in
either direction.
In managing our interest-rate risk, ALCO uses financial derivative instruments,
such as interest-rate swaps. Financial derivatives are employed to assist in the
management and/or reduction of our interest-rate risk and can effectively alter
the sensitivity of segments of the statement of condition for specified periods
of time. Along with financial derivative instruments, the income simulation
model includes short-term financial instruments, investment securities, loans,
deposits, and other borrowings. Interest-rate risk management strategies are
discussed and approved by ALCO prior to implementation.
We find that the methodologies previously discussed provide a meaningful
representation of our interest-rate and market risk sensitivity, though factors
other than changes in the interest rate environment, such as levels of
non-earning assets, and changes in the composition of earning assets, may affect
net interest income. We believe our current interest-rate sensitivity level is
appropriate, considering our economic outlook and what we believe is a
conservative approach taken in the review and monitoring of our sensitivity
position.
COMMITMENTS AND CONTINGENT LIABILITIES
Outstanding commitments and contingent liabilities as of June 30, 2001 and 2000,
and December 31, 2000 are detailed in the tables below, including the notional
amounts of all derivatives whose fair values are included in the consolidated
financial statements. As of June 30, 2001, our financial derivative instruments
included five pay fixed, receive floating swaps and three basis swaps with a
total notional amount of $141.5 million. These agreements were contracted in
October 1999, December 1999, January 2000 and July 2000.
We had 23 swaps at Riggs Bank Europe Limited, our London-based banking
subsidiary, with a total notional amount of $75.3 million that entail the
payment of a blended 6.40% fixed rate and the receipt of a floating rate equal
to six-month LIBOR. These swaps have varying maturities extending until 2005 and
are entered into primarily for the purpose of converting fixed rate loans to
variable.
As a result of Riggs Capital Partners venture capital investment activity, we
had venture capital commitments of $21.8 million as of June 30, 2001 of which
$582 thousand are committed to be funded within one year.
-24-
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK, CONTINUED
CONTRACTUAL OR NOTIONAL VALUE
------------------------------------------------------------
JUNE 30, JUNE 30, DECEMBER 31,
2001 2000 2000
=======================================================================================================================
Commitments to Extend Credit $ 887,042 $ 892,238 $1,009,025
Venture Capital Commitments 21,807 15,818 22,622
Letters of Credit 127,406 120,546 153,112
Derivative Instruments:
Foreign Exchange Contracts:
Commitments to Purchase $ 16,080 $ 66,969 $ 44,740
Commitments to Sell 241,453 287,429 231,510
Interest Rate Agreements
Swaps 216,794 119,385 229,854
Our interest rate agreement activity for the six months ended June 30, 2001, is
as follows:
BALANCE BALANCE
DECEMBER 31, JUNE 30,
2000 ADDITIONS MATURITIES TERMINATIONS 2001
===================================================================================================================================
Interest Rate Agreements:
Receive variable/pay fixed $ 41,500 $ - $ - $ - $ 41,500
Basis swaps 100,000 - - - 100,000
Riggs Bank Europe Limited 88,354 3,904 14,502 2,462 75,294
===================================================================================================================================
Total $229,854 $ 3,904 $ 14,502 $ 2,462 $ 216,794
This Quarterly Report on Form 10-Q, including the Management's Discussion and
Analysis of Financial Condition and Results of Operations, and the Quantitative
and Qualitative Disclosures About Market Risk, contains forward-looking
statements, including the references to earnings from venture capital,
implementation of our business strategy, hedging activities and our trust and
investment advisory income. A variety of factors could cause our actual results
and experiences to differ materially from those expressed or implied by the
forward-looking statements. These factors include, but are not limited to,
certain risks and uncertainties that may affect the operations, performance,
development, growth projections and results of our business. These factors also
include the growth of the economy, changes in credit quality or interest rates,
changes in value of venture capital investments in the technology and other
sectors, timing of technology enhancements for products and operating systems,
the impact of competitive products, services and pricing, customer business
requirements, Congressional legislation, general economic conditions, both
domestic and international, and similar matters.
-25-
RIGGS NATIONAL CORPORATION
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of the shareholders of the Corporation was held
on April 11, 2001, in Washington D.C. Chairman of the Board Robert
L. Allbritton presided and 26,056,199 of the 28,448,466 shares
outstanding as of the record date of February 28, 2001, were
represented in person or by proxy.
1-Elections of Directors
Nominees for membership on the Board of Directors of the
Corporation, listed below, were elected by the shareholders. The
following schedule lists the number of shares cast for each nominee:
-----------------------------------------------------------------------------------
Total Total
Votes For Votes Withheld
-----------------------------------------------------------------------------------
Joe L. Allbritton 24,668,547 1,191,934
-----------------------------------------------------------------------------------
Robert L. Allbritton 24,107,412 1,191,934
-----------------------------------------------------------------------------------
J. Carter Beese, Jr. 23,739,434 1,191,934
-----------------------------------------------------------------------------------
Charles A. Camalier, III 24,519,060 1,191,934
-----------------------------------------------------------------------------------
Timothy C. Coughlin 24,866,468 1,191,934
-----------------------------------------------------------------------------------
Lawrence I. Hebert 24,132,526 1,191,934
-----------------------------------------------------------------------------------
Steven B. Pfeiffer 24,314,988 1,191,934
-----------------------------------------------------------------------------------
Robert L. Sloan 24,312,070 1,191,934
-----------------------------------------------------------------------------------
Jack Valenti 24,836,210 1,191,934
-----------------------------------------------------------------------------------
William L. Walton 23,441,791 1,191,934
-----------------------------------------------------------------------------------
Eddie N. Williams 24,864,265 1,191,934
-----------------------------------------------------------------------------------
2-Proposal to Elect the Corporation's Independent Accountants Each
Year
By a vote of 6,597,285 For, to 15,629,119 Against, with 154,423
Abstaining, the Corporation's shareholders rejected a proposal to
implement procedures to have the shareholders elect the
Corporation's independent accountants each year.
-26-
RIGGS NATIONAL CORPORATION
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits listed on page 28 are incorporated by
reference or filed herewith in response to this item.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
RIGGS NATIONAL CORPORATION
Date: August 10, 2001 /s/ TIMOTHY C. COUGHLIN
--------------- -----------------------
President Timothy C. Coughlin
Date: August 10, 2001 /s/ STEVEN T. TAMBURO
--------------- -----------------------
Treasurer Steven T. Tamburo
(Chief Financial Officer)
-27-
INDEX TO EXHIBITS
EXHIBIT DESCRIPTION PAGES
NO.
===================================================================================================================================
(3.1)Restated Certificate of Incorporation of Riggs National Corporation,
dated April 19, 1999 (Incorporated by reference to the Registrant's
Form 10-Q for the quarter ended June 30, 1999, SEC File No. 09756).
(3.2)By-laws of the Registrant with amendments through April 12, 2000
(Incorporated by reference to the Registrant's Form 10-Q for the
quarter ended June 30, 2000, SEC File No. 09756).
(4.1)Indenture dated June 1, 1989, with respect to $100 million 9.65%
Subordinated Debentures due 2009 (Incorporated by reference to the
Registrant's Form 8-K dated June 20, 1989, SEC File No. 09756.)
(4.2)Indenture dated December 13, 1996, with respect to $150 million,
8.625% Trust Preferred Securities, Series A due 2026 (Incorporated
by reference to the Registrant's S-3 dated February 6, 1997, SEC
File No. 333-21297.)
(4.3)Indenture dated March 12, 1997, with respect to $200 million, 8.875%
Trust Preferred Securities, Series C due 2027 (Incorporated by
reference to the Registrant's S-3 dated May 2, 1997, SEC File No.
333-26447.)
(10.1)Time Sharing Agreement for lease of Beechcraft King Air 300 between
Allbritton Communications Company and Riggs Bank N.A. 29
(Exhibits omitted are not required or not applicable.)
28